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Different asset classes to look at in times of crisis

Crisis period come and go, but as an investor you stare at huge losses, especially, if the portfolio is not well spread out and is restricted to a particular asset class. Even if the economic health remains hunky dory for few years, one should always be wary of the impending crisis that may emerge in any form and any time and completely shake the optimism.

Take for instance the current scenario, where the outbreak of coronavirus pandemic has not just roiled the world equity markets but also dragged the commodity and bullion prices sharply. One should stay calm and not get perturbed in such situations and spot opportunities in various asset classes that will fetch decent returns once the market revives.

Different asset classes to look at in times of crisis

Here are some quick tips to keep in mind and use the investment acumen to build a diversified portfolio.

1) While the economic activity has come to a standstill due to fast spreading coronavirus threat, one should avoid investment in companies that are highly leveraged or speculative. The focus should be on finding companies with good cash flow and low debt for the safest investment options. And as a general guideline, try not to take any major risks at an already uncertain time.

2) After the carnage on the Dalal Street, most of the sectoral stocks are now available at lip-smacking valuations. But one should be aware that economists are already predicting a severe slowdown and a likely global recession going ahead, which could hurt the investment sentiment. Hence, it's a good idea to focus on consumer staples, or essential items that people will need (and buy) regardless of their financial situation. They typically include food, beverages — including alcohol — certain household goods and tobacco.

3) In times of uncertainty, it's best to focus on finding non-cyclical industries offering goods and services that are in constant, year-round demand. In addition to the consumer staples mentioned above, these recession-resistant industries include grocery stores, discount stores, alcohol manufacturers, and cosmetics.

4) Always believe in the old saying, do not put all your eggs in a single basket. Diversifying across industries will protect you from greater losses if a particular product or industry loses value. Equally important is diversification across asset classes, e.g., equities, in addition to fixed income and commodities. Several fixed income products of good mutual funds tend to do well because of diversification into government bonds, commercial papers, etc. Commodities like crude prices are currently ruling at multi-year lows, but improvement in demand scenario and better economic growth prospects will lift sentiment.

5) Place your bet on listed companies that has a history of declaring good dividend. Dividend stocks create a passive income. It’s generally recommended to look for companies that have low debt-to-equity ratios. To be on a safer side, focus only on fully reliable companies, i.e. those that have increased their dividend payouts for at least 25 consecutive years.

6) It has been seen in the past that investing in precious metals, particularly gold, during uncertain times has fetched better returns due to investors appetite for safe-haven assets. Recently, while gold prices also took a beating along with other asset classes, experts believe that prices of yellow will bounce back soon. Investors can chose to invest in gold through Exchange Traded Funds (ETFs) by not physically owning it.

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